Standard & Poor’s predicts that a credit gap will continue to widen between not-for-profit hospitals that rank at the top and at the bottom in performance. Hospitals with top-tier credits have greater liquidity to increase capital spending on construction projects and IT and are in a better position to benefit from the rise of consumerism, quality measurement, and pay-for-performance initiatives, according to the commentary. Institutions with stronger credit also will continue to have more leverage in gaining favorable reimbursement and will be able to “counteract competition with medical staff.” And greater credit strength also allows for better access to lower-cost capital.
“The credit gap falls heavily on smaller, stand-alone providers in urban or semi-urban settings--many of which have unfavorable demographics and feature weak payer mixes and a low case mix,” said the report. And unless these organizations take steps to improve their long-term viability now, they will be at risk for mergers, closures, and bankruptcies. “Barring a fundamental restructuring of the healthcare system through reform of the insurance system or payment structures, the credit gap is likely to continue to widen,” concludes the commentary. “And if the general environment becomes less favorable, as is widely expected over the next few years, beginning perhaps as early as 2009, a sizable shakeout in the industry is likely to occur as those players that are just marginal now will find it impossible to survive in a more difficult environment.” For more information, call 212-438-7963.
